It will take 2 years to come out of the recessionary trend: Vedanta chief

Mumbai, March 5 Global economic gloom has cast its shadow on the metal markets. Prices of ferrous and non-ferrous metals have crashed from their historic highs scaled last year. Being a cost-intensive business, many of the metal manufacturers and mining companies have halved their production and resorted to retrenching employees. The series of the stimulus packages announced by various countries to rev up the ailing economy seems to be working, though long-term prospects remain uncertain. “Worse come worst, we will be the last to die fighting the recession. We have made a concerted effort to keep the production cost lower than our competitors across our operations,” said Mr Anil Agarwal, Chairman, Vedanta Group. Speaking to Business Line in Jaipur, Mr Agarwal, who shuttles between the UK and India in his jet, expects the current slowdown to impact businesses for the next two years. Excerpts from the interview: While major metal companies are trimming production, Vedanta Group is among the select few that harbour ambitious expansion plans. Can you throw some light on your capex? We have lined up an investment of Rs 60,000 crore for next two financial years. By financial year 2011-end, we want to be the largest zinc producer, besides the third largest in aluminium and mining. We are setting up a two million tonne (mt) aluminium making unit in Jharsuguda, Orissa and five mt of alumina at Lanjigarh also in Orissa. Another six lakh tonnes (lt) aluminium capacity is coming up at Balco in Chhattisgarh. This is apart from a 3,600 MW captive power plant that will come up alongside the aluminium unit in Jharsuguda. About 25,000 people are on the job. We are doubling our copper production to eight lt in Tuticorin and expanding capacity in Zambia to five lt from 2.50 lt . Our zinc production will go up from 1.60 lt to 10 lt by FY2011. Potential for metals is enormous in India. Australia, Canada and South Africa account for 53 per cent of minerals, whereas India, which has the same geological parameters like them, chips in with just three per cent. How do you intend to raise funds for the expansion? We have about $6 billion (Rs 30,000 crore) in cash and the rest will be from internal accruals. There are no plans to raise funds from the market. Your capacity expansion programme comes at a time when demand is low and companies are cutting production. Our plans are long-term. In the metals business, one does not wait for demand to add capacity as expansion of mining and metals capacity takes a long time. We too have cut down production wherever cost is high, but most of our plants are cost-efficient as we have captive power plants at almost all our units. What are your plans for Sterlite Energy? All our power projects will be by Sterlite Energy. We are setting up a 2,400 MW power plant in Orissa and the first turbine of 600 MW will go on stream in September. Another power plant costing Rs 10,000 crore is to come up in Rajasthan soon. You have announced buyback of Madras Aluminium shares for delisting. What are the plans of company? Last September, we announced a plan to restructure and simplify the corporate structure and eliminate conflict of interests between group companies. Our plan was to have three business verticals – copper, zinc and lead; aluminium and energy and iron ore. According to the proposal, Vedanta was to have three companies under its fold – Sterlite (which was to have Hindustan Zinc Ltd, CMT and Konkola Copper Mines), Vedanta Aluminium Ltd and Sesa Goa. The buyback offer of Malco was part of this. We also have plans to buy back the 49 per cent of the Government holding in Balco as and when the divestment takes place. We will eventually implement the proposal to restructure our business. In layman’s language, we have all the furniture. Now our responsibility is to put them in order. How far are you from bringing Arasco Llc into your fold? We had signed the deal to acquire Arasco at $2.4 billion when copper prices were at $8,500 a tonne, but now the prices are $3,000 levels. We are now renegotiating the deal and I cannot comment further. Sesa Goa exports a major chunk of iron ore to China where the demand has dropped substantially. Going forward what is your outlook for Sesa Goa? It is true that the iron ore demand has plunged, especially in China where steel manufacturers have reduced offtake. Prices are down by about 60 per cent. But you should also understand that we export to 15 countries. Iron ore is a scarce commodity and demand will eventually pick up. We are also expanding capacity at Sea Goa from 10 mt to 25 mt by FY11 with a target to achieve a production of 100 mt. Governments across countries have announced stimulus packages to revive their economy. When do you see the revival? The US, which has best of infrastructure, has announced that it would spend billions of dollars to improve infrastructure. China and India have also lined up huge investments. The infrastructure spending will definitely boost demand for cement and metals. I think it will take at least two years to come out of the present recessionary trend.